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As part of the continuing fuel and purchased power
adjustment and generating performance incentive factor clause proceedings, an
administrative hearing was held on October 22, 2014. At the hearing, the
Commission, by bench decision, ruled on the stipulated issues, which included
all issues for Tampa Electric Company, Gulf Power Company, Florida Power and
Light Company, and Florida Public Utilities Company. Although the Commission approved
some stipulated issues for Duke Energy Florida, Inc. (Duke or Company), at the
October 22, 2014 hearing, testimony was heard on Issues 1C, 10, and 11. No
parties filed briefs.

Issue 1C addresses whether Duke has made the appropriate
adjustments to its fuel costs to account for replacement power costs associated
with the transformer fire that occurred at Duke’s Bartow unit in April 2014.
Issue 10 addresses the appropriate total fuel true-up to be collected or
refunded in 2015 fuel factors and is the sum of the final true-up for 2013 and
the actual/estimated true-up for 2014. Issue 11 addresses the appropriate 2015
projected fuel cost for calculation of Duke’s 2015 fuel factors. These issues
were not included in the bench decision so that the refunds and adjustments
required by the Revised and Restated Stipulation and Settlement Agreement
(RRSSA), which the Commission approved by Order No. PSC-13-0598-FOF-EI,[1]
could be verified.

The Commission has jurisdiction over this subject matter
pursuant to the provisions of Chapter 366, Florida Statutes (F.S.), including
Sections 366.04, 366.05, and 366.06, F.S.

Has Duke made appropriate adjustments, if any are
needed, to account for replacement power costs associated with April 2014
forced outage (transformer fire) at the Bartow Unit? If appropriate
adjustments are needed and have not been made, what adjustment(s) should be
made?

Recommendation: Yes. Duke
has removed approximately $12.7 million from retail fuel expense, which is the
appropriate adjustment to account for replacement power costs associated with
the April 2014 forced outage (transformer fire) at the Bartow unit.

Yes, DEF chose to reduce retail fuel expense thereby
removing the impact of the replacement power to retail customers.

OPC: At this time,
the OPC is in agreement with the position taken by Duke that the costs
associated with the replacement power associated with the Bartow transformer
fire in April 2014 should not be passed on to the customers. Duke should
demonstrate at the hearing that these costs have indeed been withheld from
requested fuel cost recovery.

FIPUG: Replacement
power costs associated with the Bartow transformer fire (April 2014) should not
be paid for by ratepayers.

FRF: Agree with
OPC.

PCS: PCS agrees
with the Office of Public Counsel.

Staff Analysis:

On April 21, 2014, a transformer fire occurred at
Duke’s Bartow unit. As a result of the fire, Duke had to purchase replacement
power to make up for the power not being generated at the Bartow combined cycle
plant. Witness Foster stated that Duke incurred replacement power costs of approximately
$12.7 million ($12.9 million system). (TR 415) Rather than including these
costs for replacement power in its request for fuel cost recovery, Duke made an
adjustment to remove these amounts, thereby shielding the impact of this outage
from its retail customers. Exhibit TGF-2, sponsored by Duke witness Foster,
shows the $12.7 million adjustment. (EXH 23) Witness Foster testified that
although Duke has agreed that it will never submit the costs incurred as a
result of the outage for recovery, it does not admit or address imprudence by
so doing. (TR 416)

As noted above, the fire that occurred at Duke’s Bartow
plant required the Company to incur replacement power costs of approximately
$12.7 million ($12.9 million system). Duke is not seeking to recover these
costs in this clause proceeding or in any other forum. (TR 416-417) The OPC
cross-examined Duke witness Foster, primarily to confirm the entries Duke made
on its schedules to account for the $12.7 million ($12.9 million system)
adjustment. (TR 416; EXH 71)

Staff has reviewed Duke’s filings and verified that the
costs associated with the replacement power of approximately $12.7 million has
been removed from retail fuel expenses. As such, staff recommends that Duke
has made the appropriate adjustments to account for replacement power costs
associated with the April 2014 forced outage (transformer fire) at the Bartow
unit.

Issue 10:

What are the appropriate total fuel adjustment
true-up amounts to be collected/refunded from January 2015 to December 2015?

Recommendation:

Given the 2013 final true-up of an over-recovery of
$27,234,093 and the 2014 actual/estimated true-up of an under-recovery of
$100,906,296, the appropriate amount to be collected by Duke in 2015 is a net
under-recovery of $73,672,203. Duke has correctly made the necessary
adjustments and refunds pursuant to the Revised and Restated Stipulation and Settlement
Agreement that the Commission approved by Order No. PSC-13-0598-FOF-EI.
(Lester, Barrett)

Position
of the Parties

DEF:

$73,672,203 under-recovery.

OPC: The cost
recovery amounts should reflect the position taken by OPC in the company
specific issues. For Duke, the Commission must also insure that 100% of the
refunds due customers under the 2012 and 2013 Settlement agreements are flowed
through to customers. Further, the costs associated with the replacement power
associated with the Bartow transformer fire in April 2014 should not be passed
on to the customers. Duke should demonstrate at the hearing that these costs
have indeed been withheld from requested fuel cost recovery.

FIPUG: FIPUG’s
prehearing position does not address this issue.

FRF: Agree with
OPC.

PCS: PCS agrees
with the Office of Public Counsel.

Staff Analysis:

Duke’s final true-up for 2013 is an over-recovery of
$27,234,093. According to Duke witness Foster, this amount is affected by
Paragraphs 6.a, 7.c, and 7.d of the RRSSA. Paragraph 6.a required a refund of
$129 million to retail ratepayers in 2013 through the fuel clause. The effect
of this refund is included in the calculation of the 2013 true-up. (TR 356, 360-361,
400-403; EXH 19, p. 1, 3; EXH 71 p. 3, 46, 48)

Paragraph 7.d allowed Duke to collect $326 million
previously credited in the fuel clause for NEIL proceeds. Witness Foster
testified that this amount is inherently included in the 2013 true-up
calculation, with the net effect of Paragraphs 7.c and 7.d being a final NEIL
adjustment of a refund of approximately $163 million. (TR 362, 413; EXH 69, p.
5; EXH 19, p. 6)

The 2014 actual/estimated true-up is an under-recovery of
$100,906,296. (TR 404, EXH 23, p. 3; EXH 24, p.5; EXH 71, p. 3) Witness Foster
testified that this amount is affected by Paragraphs 6.a, 7.a, 7.c, and 7.d of
the RRSSA. The effect of the refund of $129 million in 2014, as required by
Paragraph 6.a, is included in the 2014 actual/estimated true-up calculation.
Also included, for purposes of calculating the 2014 actual estimated true-up
amount, is a $10 million refund, allocated 94 percent to residential customers
and 6 percent to general service non-demand customers. This refund was
required by Paragraph 6.a. (TR 369-370, 393, 408; EXH 23, p. 3; EXH 71, p. 40)

Pursuant to Paragraph 7.a of the RRSSA, revenue collected
under this provision applies toward early recovery of the CR3 regulatory
asset. Witness Foster provided a late-filed exhibit showing the
actual/estimated AFUDC on the CR3 regulatory asset, fuel revenue collected
based on Paragraph 7.a, and the amount to be applied to the AFUDC on the
regulatory asset in 2014. The total amount of the regulatory asset as of
September 2014 is $1.405 billion. Revenue collected pursuant to Paragraph 7.a
reduces, but does not eliminate, the carrying cost on the regulatory asset.
(EXH 72) The amounts for 2014 are presented below.

CR3 Regulatory Asset AFUDC and Early Recovery

in millions

1

AFUDC on CR3 Regulatory Asset

$74.60

2

Fuel Revenue ($1.00/mWh)

$38.50

3

Less Income Tax (38.575%)

($14.80)

4

Early Recovery Applied to CRC
Regulatory Asset

$23.60

5

Total CR3 Regulatory Asset (as
of Sep 2014)

$1,405

Rows 1 through 4: Actual
Jan-Sep, Estimated Oct-Dec 2014

Source: EXH 72

As noted above, the effects of Paragraphs 7.c and 7.d are
included in the calculation of the 2013 true-up amount. (TR 371) With the
over-recovery of $27,234,093 for 2013 and the actual/estimated under-recovery
of $100,906,296 for 2014, the net true-up is an under-recovery of $73,672,203.
(TR 404) Staff recommends this amount as appropriate for inclusion in the
calculation of 2015 fuel factors. Staff believes Duke has correctly made the
necessary adjustments and refunds pursuant to the RRSSA.

Issue 11:

What are the appropriate projected total fuel and
purchased power cost recovery amounts for the period January 2015 through
December 2015?

Recommendation:

The appropriate projected total fuel and purchased
power cost recovery amount for Duke is $1,638,735,421. Duke has correctly made
the necessary adjustments and refunds pursuant to the Revised and Restated Stipulation
and Settlement Agreement that the Commission approved by Order No. PSC-13-0598-FOF-EI.
(Lester, Barrett)

Position
of the Parties

DEF:

$1,638,735,421.

OPC: The cost
recovery amounts should reflect the position taken by OPC in the company
specific issues. For Duke, the Commission must also insure that 100% of the
refunds due customers under the 2012 and 2013 Settlement agreements are flowed
through to customers. Further, the costs associated with the replacement power
associated with the Bartow transformer fire in April 2014 should not be passed
on to the customers. Duke should demonstrate at the hearing that these costs
have indeed been withheld from requested fuel cost recovery.

FIPUG: FIPUG’s
prehearing position does not address this issue.

FRF: Agree with
OPC.

PCS: PCS agrees
with the Office of Public Counsel.

Staff Analysis:

Duke witness Foster testified that Paragraphs 6.a,
6.b, and 7.a all impact the projection filing for the 2015 fuel factors. Paragraph
6.a requires Duke to refund to residential and general service non-demand
customers $10 million in 2015 through the fuel clause, allocated 94 percent to
residential customers and 6 percent to general service non-demand customers.
Witness Foster testified that Duke’s 2015 fuel factors include this refund. (TR
378-379; EXH 24, p. 107; EXH 71, p. 8)

Paragraph 7.a allows Duke to increase retail fuel rates by
$1.00 per mWh in 2015. This provision is for early recovery of the CR3
regulatory asset. Pursuant to Paragraph 7.a, Duke added 0.10 cents per kWh to
the fuel factor at secondary metering from which the other fuel factors were
derived. (TR 376-377, 379, 395, 405; EXH 24, p. 10)

The appropriate projected amount for 2015 is
$1,638,735,421. Staff recommends this amount as appropriate for inclusion in
the calculation of 2015 fuel factors. Staff recommends that Duke has correctly
made the necessary adjustments and refunds pursuant to the RRSSA.